We are in a news vacuum. The market wants to move higher and there is nothing to stand in the way. Light pre-holiday trading favors the bulls. However, there is a chance for a speed bump tomorrow.
Wednesday afternoon the FOMC minutes will be released. The market knows that the “great unwind” will start sooner or later and it does not like to be reminded. In the last FOMC statement, the rhetoric was balanced. The Fed will maintain current policies if conditions are sluggish. If they improve, they will start to tighten. The consensus probably remained dovish due to current economic releases. However, if conditions improve we can expect them to pull the punch bowl away. I believe the reaction will be negative when that message is repeated.
After a big market run-up, traders are looking for an excuse to take profits. Bullish speculators need to be flushed out and this is the type of news that could spark selling.
Thursday morning flash PMI’s will be released along with initial jobless claims. China’s growth has been light and this release has the potential to disappoint. Initial jobless claims spiked 32,000 last week and traders will be looking for a downward adjustment. If we don’t see one, the number will cast doubt.
I am not looking for a big decline, just a one or two day pullback. Asset Managers are still waiting in the wings and any decline will be brief and shallow. If this scenario plays out, I will buy calls on stocks that are breaking out. If not, I will concentrate on day trading.
I have been able to catch most of the moves intraday and I don’t have any overnight risk exposure. I also don’t have to worry about time decay. Option buyers will face a stiff headwind if the market momentum stalls.
Look for choppy trading the rest of the day. If we see selling tomorrow afternoon and Thursday, buy calls when support is established. Otherwise, day trade and keep your powder dry. There will be a better opportunity after Memorial Day.